Friday, December 15, 2006

Falling Inflation

It's pretty unequivocal now, I think: the inflation rate in the US is clearly falling, even aside from the drop in oil prices that we've enjoyed recently. Today's BLS report on consumer price inflation adds to the data:

On a seasonally adjusted basis, the CPI-U was unchanged in November, following declines of 0.5 percent in each of the preceding two months. Energy prices, which declined sharply in September and October, fell 0.2 percent in November. Within energy, the index for petroleum-based energy decreased 1.5 percent while the index for energy services increased 1.2 percent. The food index decreased 0.1 percent in November. The index for all items less food and energy was virtually unchanged in November, following an increase of 0.1 percent in October. A 0.4 percent increase in shelter costs was partially offset by declines in the indexes for apparel and for the non-energy portion of the transportation index, particularly the indexes for new and used vehicles and for airline fares.

Here's the picture of inflation for things other than food and energy products:

This simplifies things for the Fed considerably. They no longer have to keep interest rates high to maintain their inflation-fighting credibility. Instead, they can focus their attention on cushioning the slowdown of the US economy in 2007.

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The Street Light is written by economist Kash Mansori, who works as an economic consultant (though views expressed here are entirely his own), writes whenever he can in his spare time, and teaches a bit here and there. You can contact him by writing to the gmail account streetlightblog. (More about Kash.)